I move: "That the Bill be now read a Second Time."
The main purpose of this Bill is to allow the Minister for Finance to write off amounts outstanding on a loan from the local loans fund where he considers it appropriate to do so. This is essentially a technical provision which arises from a decision to simplify the system of financing capital programmes operated by local authorities.
The present system has developed into an expensive and time-consuming circle of payments and has been in need of reform for some time. The changes will have no adverse effect on the finances of either the Exchequer or local authorities but will reduce administration costs.
The local loans fund was set up by the Local Loans Fund Act, 1935. Prior to this a non-statutory fund was financed by a grant-in-aid, voted annually. The origins of this fund go back about 100 years. Loans from the fund are available for local capital programmes, repayable over periods of 25 to 50 years, the principal programmes being house building and sanitary services. The fund is also used to finance housing mortgages issued by local authoities. When formally established in 1935 a limit of £5 million was set on advances from the fund. The most recent amendment in 1986 increased this limit to £4,500 million.
The financing of repayments has changed substantially over the past 20 years. As local authorities undertook more capital programmes and borrowed more from the fund, their burden of repayments increased until it became necessary to introduce subsidies on some loan charges. These subsidies were gradually increased and the Exchequer now subsidises the vast bulk of the repayments. The subsidies on loan charges now range from between 40 per cent and 60 per cent for sanitary services programmes up to 100 per cent for local authority housing. Such subsidies are not paid on the loans for house purchase.
The position now is that the majority of the loans to local authorities are loans in name only. Giving a 100 per cent subsidy means that, having provided the loan, the Exchequer also provides the repayments. Even where a loan is partially subsidised the Exchequer in effect meets all the repayments, a portion through the loan charges subsidy and the remainder through the rates support grant. The result is that the Exchequer meets the entire cost of funding local authority capital programmes by means of an elaborate, expensive and needless circle of payments.
In order to break this circle and reduce the administration costs I propose to alter the system. From 1988 onwards grants will be given for all those programmes which previously qualified for subsidised loans. In consequence of this change I must also have power to write off the outstanding principal and interest due on existing loans.
The writing off of the loans will have no net effect on either local authority or Exchequer finances. Where a loan which was fully subsidised is written off obviously there will be no change in the finances of the local authority or the Exchequer. Where a loan which was partially subsidised is written off, the rates support grant payable to the local authority concerned will be reduced by an amount corresponding to the unsubsidised portion of the loan charges. Overall the net cash position remains unchanged.
Loans for house purchase mortgages will continue to be provided. There is no need to change the present arrangement in this case as the householders repay their mortgages and there is no circle of payments due to subsidies.
This legislation will allow the arrangements for funding local authorities capital programmes to be greatly simplified and will remove a costly apparatus required to administer the present method of subsidised repayments. The legislation will have no adverse effect on the amount of funds available from the Exchequer to local authorities but will reduce the administrative cost of providing these funds. Arrangements for the actual writing off of existing repayments and the adjustments in grants to local authorities will be made in consultation with Ministers concerned. The intention is that the substitution of capital grants for loans and the adjustment of the rate support grant will take effect from 1 January 1988.
Section 1 of the Bill provides that the Minister for Finance may waive the repayment of any unpaid balance, including interest, on a loan advance from the local loans fund.
Section 2 provides that a statement of such waivers shall be laid before each House of the Oireachtas from time to time.
Section 3 provides for consequential amendments in two other Acts which have sections dealing with the writing off of sums outstanding on loans from the local loans fund.
I commend the Bill for the approval of the House.